Companies and trading losses

Source: HM Revenue & Customs | | 11/10/2018

Corporation Tax relief may be available when a company or organisation makes a trading loss. The loss may be used to claim relief from Corporation Tax by offset against other gains or profits of the business in the same or previous accounting period.

The loss can also be set against future qualifying trading income. Any claim for trading losses forms part of the company tax return. The trading profit or loss for Corporation Tax purposes is worked out by making the usual tax adjustments to the figure
of profit or loss shown in the company or organisation’s financial accounts.

Some of the basic requirements for a trade loss to be set off against other income sources include:

being within the charge to Corporation Tax

the trade must be carried on a commercial basis and with a view to the realisation of profit

at least some of the trade must be carried out within the UK

The rules for the Corporation Tax treatment of carried forward losses changed from 1 April 2017. The changes increased flexibility to set off carried forward losses against total profits of the same company or another company in a group whilst at the same
time introduced new restrictions as to the amount of profits against which carried forward losses can be set. Any losses carried forward prior to 1 April 2017 fall under the old loss relief rules and must be handled accordingly.